Tweeter Expects 3-6% Drop In Q4 Comp-Store Sales

Canton, Mass. - Bludgeoned by the combination of terrorist attacks, the resulting decline in the stock market and a significant shift in its product mix, Tweeter Home Entertainment Group said it expects comp-store sales for its fiscal fourth quarter ending Sept. 30 to finish down between 3 percent and 6 percent. This compares to an increase of 9.4 percent in the same three months last year, and previously announced expectations for the fourth quarter of 0 percent to 2 percent.

Tweeter said sales in the first week of September were slightly negative, then fell dramatically following the Sept. 11 attacks. The decline continued during the sell-off in the stock markets.

Sales have now recovered sporadically in many regions of the country, but are running substantially negative in the Northeast and Florida, said Tweeter.

Because comp-store sales in the Northeast are down in the low teens in September, Tweeter said this will have a disproportionate effect on overall earnings, because the Northeast is historically its strongest contributor to earnings. Comp-store sales in one other region are down about 4 percent, while the remaining three regions are comp-store positive in the low single digits.

The inclusion of Sound Advice in August and September financial results was expected to be neutral on earnings, and through August, Sound Advice was performing to plan, said Tweeter, with a 2.1 percent increase in comp-store sales in August. However, September-to-date sales at Sound Advice are off almost 20 percent, which will negatively affect earnings.

September is the month when most of the profit for the fourth quarter is earned, said Tweeter, so revenue and margin declines in September will have a disproportionate effect on earnings for the entire fourth quarter.

Also, the retailer said it is facing a significant shift in product mix, with substantial increases in TV sales, while audio sales and margins have suffered a significant decline. This will have a negative effect on gross margin in the fourth quarter, with year-over-year declines in gross margin for the three months expected to be at between 150 and 250 basis points.

For the fiscal year ending Sept. 30, Tweeter expects total sales to be between $534 million and $540 million, compared to $405 million last year. Income is expected to be between $17 million and $18 million for the 12 months, compared with $16.4 million in the same period last year.

Tweeter has budgeted its business to be flat in the fiscal first quarter of next year, ending in December. This compares to a 1.2 percent comp-store gain in this year's first quarter. The retailer would not predict earnings at this time.

Tweeter said it will take a charge of about $1.2 million to operating income in the fourth quarter of the current fiscal year to write off its investment in Outpost.com, which is expected to soon sign a merger agreement with Frye's.